People typically think about corporate board members having equal voting rights: One director, one vote. However, for Delaware corporations, that is not always the case.
Delaware Statute – Board Members
This unusual situation is the result of a Delaware statute. (more…)
This post about limiting directors’ voting rights is based on my answer to a Quora question. (See Can a business owner draw up bylaws/articles of an organization that limit voting rights of directors?)
The incorporator or shareholders may approve a certificate of incorporation or bylaws that limit directors’ voting rights. (more…)
This post addresses a generalized version of a question that I answered on Quora concerning committees of corporate boards of directors. Q. Who appoints the members of a board committee?
A. Appointment of board committee members is governed by the corporation’s bylaws, or by applicable statutes if there are no bylaws. In my experience, bylaws (or statutes) state that a board committee is appointed by a majority of the board members. Committees are not appointed by the CEO or the Chair of the Board. (more…)
This post is based on a Quora question that I answered: Q. What is the board of directors? What are the functions of the board of directors? What is the function of each member of the board?
A. The board of directors, which is subject to shareholder election and removal, generally is responsible for managing the corporation’s business and affairs.
Specific responsibilities typically undertaken by a board (particularly in a mature company) include, but are not necessarily limited to, the following: (more…)
This post is adapted from a question I answered on OnStartups. Q. I’ve been working for a large private company, and my offer letter said I would receive X number of options as long as the board approved it. It’s been a year and I’ve been stonewalled on the option plan. I’ve sent multiple emails to HR and the controller and the CFO. HR has gotten back to me, but their hands are tied. Can I send a letter and a check to the CFO with $100 to force the issue of exercising some amount of shares and determining the strike price that way?
A. Unfortunately, “subject to board approval” is a common contingency for stock option grants. At this point, I’m not sure there is much you can do about it.
If you form a corporation, the Postal Service soon will inundate you with official-looking forms from companies offering to create or file corporate documents on your behalf. Earlier this week I rescued a client from one of these unnecessary companies, Compliance Services.
The following question (edited for length) is from Founders Space. Q. What’s the minimum two founders must do regarding board meetings for a startup Delaware corporation doing business in California?
A. You should hold an annual stockholder meeting – or, alternatively, prepare a written consent – at which the stockholders elect the board of directors. See Delaware General Corporation Law Sections 211 and following. (more…)
Earlier today I answered the following Quora question: What does the Chairman of the Board do?
Here is the answer that I provided:
The Chairman of the Board does what the Bylaws and the Board of Directors say s/he will do. Here is some typical Bylaws language: (more…)
Cumulative voting for corporate directors is a process by which each shareholder’s voting power is multiplied by the number of directors to be elected. The objective: By allocating all of their votes to one or a small number of directors, minority shareholders can ensure that their interests are represented on the board. (I.e., a majority shareholder will not automatically control all board seats.) (more…)
Two recently-acquired clients had similar situations that brought up the importance of complying with legal requirements.
Each company is a multi-founder startup where one founder became non-productive, and even somewhat detrimental to the business. The other founders wanted to move the problem founder off to the side, where he could cause no more trouble, in a manner that would be fair to everyone involved.
Unfortunately, each company had failed to comply with some of the most basic legal requirements: Holding annual shareholder meetings to elect directors, annual board of director meetings to appoint officers, etc. As a result, in each instance we had to spend time and money taking corporate actions, and recording those actions appropriately in meeting minutes, before the real problem could be solved.
Sometimes, in an effort to reduce legal fees, clients conduct corporate annual meetings, and prepare minutes, on their own. Regrettably, if they do not know what they are doing, they can make a mess. Here is a quick overview of how to do things right.
Both California (Corporations Code Section 600(b)) and Delaware (General Corporation Law Section 211(b)) require that every corporation hold an annual meeting of its shareholders to elect directors for the coming year. (In the case of a Delaware corporation, however, the directors may be elected by written consent without calling a meeting.) Any other proper business may be transacted at the shareholder meeting.